Like ice cream and apple pie, everybody wants a “growth budget”. But what is a “growth budget”? Is the 2025/26 budget a growth budget? What would one actually look like? And how much influence can any government budget really have on economic growth?
There is almost no question that reverberates more pertinently – and depressingly – around South Africa’s budget season. These questions stem from a deep, entrenched, obvious and disturbingly resilient problem: South Africa is just ex-growth.
Once a minor poster child of emerging markets, South Africa is now more of a case study in fiscal cholesterol. What was once a promising miracle turnaround now seems irretrievably caught in stagnation, policy incoherence, institutional fatigue and structural drag.
And yet, year after year, finance minister after finance minister has spoken urgently, glowingly and emphatically about the need for economic growth – while at the same time forecasting GDP growth rates consistently below the rate of population growth. Finance minister Enoch Godongwana’s Budget 3.0 was no different.
In his budget speech on Wednesday, he said: “Faster, inclusive growth that creates jobs is the only path towards a more prosperous South Africa. Attaining this growth must be our national obsession. We all have a stake and a responsibility to work towards this goal.”
And yet, in the same budget, Godongwana lowered his own growth forecast for 2025 to 1.4%, down from 1.9% just two months earlier.
The Budget Review includes a graph that illustrates this bleak reality: the 2020s are shaping up to be the worst decade for economic growth in South Africa’s recorded history. (Admittedly, Covid played a role, but the trend long preceded the pandemic.)
Like his predecessors, Godongwana is trying to persuade MPs – and the public – to focus on the central issue at hand: economic growth.
So, to what extent is the 2025/26 budget – with its now-scrapped two percentage point VAT hike – a growth budget? And without that tax increase, is the final version more or less of one?
Godongwana outlined four pillars for a growth-oriented budget:
- Maintaining macroeconomic stability;
- Implementing structural reforms;
- Improving state capability; and
- Accelerating infrastructure investment.
Most economists would agree with that list. But each element deserves scrutiny.
Macroeconomic stability and debt
A growth budget is not as simple as cutting taxes – though that might help. But in a country with an unsustainable debt trajectory, raising taxes to restore fiscal credibility can also be a growth-positive move. Godongwana claimed this was his intent with the original tax proposals.
There’s no doubt that South Africa’s debt position is troubling. To Treasury’s credit, it is refreshingly honest about it. The Budget Review includes a graph showing how far South Africa has diverged from peer countries on public debt.
Debt-service costs are now the largest single item in the budget. In 2025/26, public debt is projected to stabilise at 77.4% of GDP, 1.2 percentage points higher than the March estimate. Godongwana acknowledged the concern, while simultaneously admitting the trend is worsening.
Was Budget 1.0 (the February version) more of a growth budget than Budget 3.0 (the May revision)? Perhaps. But most of the tax hikes in Budget 1.0 were earmarked for increased spending rather than aggressive debt reduction.
And that’s the classic problem with government tax increases: announced as debt-reduction tools, they often end up funding new expenditure. In Budget 3.0, the debt trajectory was softened instead by reducing additional medium-term spending by R68bn – mainly provisional allocations not yet assigned to departments. In plain English: existing baselines remained unchanged.
So much for the much-vaunted R75bn in Budget 1.0 that supposedly required immediate tax hikes.
State capability and SOE bailouts
What does “improving state capability” actually mean? It’s hard to pin down. It might mean hiring more civil servants – which is not usually a feature of a growth budget.
Godongwana mentioned a R9.5bn increase to the education budget over the medium-term expenditure framework to “keep teachers in classrooms and hire more staff.” That may support social outcomes, but it does little to address state efficiency.
In reality, “state capability” often amounts to bailing out SOEs. Eskom’s bailout continues after its disastrous build programme. Transnet’s bailout has now begun via government guarantees on maturing debt. These aren’t growth measures – they’re catastrophe avoidance.
Infrastructure investment: real or rhetorical?
Infrastructure investment is growth-positive, because it rebalances spending away from consumption and towards productive assets. Godongwana proudly stated the budget includes R1-trillion in infrastructure investment.
Sounds impressive. But is it real?
The number isn’t new, and it’s riddled with caveats. Much of it relies on state entities and municipalities. Take roads agency Sanral, for instance: of the R402bn allocated to transport and logistics, R93.1bn goes to Sanral for roads.
But Sanral is in a shambolic state – frequent court battles, procurement controversies, and a board with scant engineering expertise (its chair is a former humanities lecturer). The private construction sector, which should be implementing this spend, is in visible decline.
So, yes, infrastructure is essential to a growth budget – but allocation ≠ execution.
Structural reform: the perpetual promise
“Structural reform” is the government’s perennial refrain. But change is incremental at best.
A “red tape reduction” programme has been under way for years, yet bureaucracy remains burdensome. A bright spot is the slow traction gained by public-private partnerships (PPPs): new regulations for PPPs were gazetted this year and take effect next month. They include long-awaited provisions for unsolicited proposals.
Still, PPPs account for a tiny slice of anticipated infrastructure investment.
Meanwhile, some government policies are moving in the opposite direction of reform. Intensified BEE legislation, for example, increases complexity and state intervention – hardly the hallmarks of structural liberalisation.
Conclusion: government can’t declare growth into existence
Ultimately, government represents only about a third of the total economy. It cannot unilaterally declare growth into existence. But it can lead by example, define priorities, and signal seriousness – by removing obstacles, aligning incentives and investing where the private sector cannot or will not.
Is it doing that?
Sort of.
But transparently not enough.
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